Traders are notorious for their overconfidence. They trade beyond their skill level and comfort zone and pay for it. It’s understandable, though. Who doesn’t want to win, and win big? For many traders, overconfidence reflects a form of denial. The novice trader may have difficulty accepting his or her limited trading skills. It’s hard to face losing, and the best way to deal with feelings of inadequacy is to mask them with an arrogant, unrealistic sense of overconfidence. But overconfidence can be harmful.
If you don’t carefully manage risk and methodically outline your trading plan, you may execute a trade that has disastrous results. That said, you can’t feel stuck and paralyzed when you are about to execute a trade. A profitable trader must find a balance between unrealistic overconfidence and extremely low confidence. If you’ve taken all precautions to develop a well-defined trading plan, yet lack the confidence to pull the trigger, you might want to give yourself an ego boost.
Some traders have trouble maintaining a valid sense of confidence. They’ve done all their homework, accounted for all possible adverse events, and have risk management in place, but they still have trouble feeling safe enough to execute the trade. If this happens to you, drastic measures may be required. You may need to boost your confidence. Here are some steps you can take.
If you suffer from low self-confidence, try a little boasting. Write down your biggest accomplishments and read them over. Maybe it’s a business deal that brought you praise at work, or the A you received in the hardest course you studied in school. Or maybe, you have a big winning trade that reminds you of your skill and talent as a trader. Whatever it is, it’s helpful to think of this winning experience when you feel down and beaten.
If you’re having trouble pulling the trigger, it may also be all right to pretend that the trade you are about to execute will be a big winner. You must use this method carefully, however. You don’t want to pretend the trade is a winner when you are first formulating your trading plan. But once you have thought it through completely, and are ready to execute, yet have irrational levels of low confidence, fantasizing about how the trade in front of you is a winner about to come to fruition can give you the confidence boost you need.
Other forms of fantasy can also be helpful. You might fantasize about winning the Indy 500 or throwing the winning touchdown pass in the final seconds of the Rose Bowl. The mind can get stuck in place when you have low confidence. Imagining yourself accomplishing your wildest dreams can quickly activate the part of your brain that makes you feel enthusiastic.
You can also get your mind to feel confident through physical activity. Physical exercise can activate the parts of the brain responsible for optimism and psychological energy. You might also listen to some inspirational music to get your mind active and moving forward. For example, the song “Far From Over” is up-tempo and has inspirational lyrics, such as “I am down, but I am far from over.” Other songs that inspire people are the theme from “Rocky” or “We Are the Champions.” Music and exercise can get your physiology moving. You’ll feel relaxed, energized, and ready to take action.
So if you are intellectually sure that you’ve done all you could to make a winning trade, yet are emotionally stuck, give yourself an ego boost. It will give you the confidence you need to execute the trade.